Hanhwa successful in defending interlocutory application by Directed

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By Phoebe Pitt, Senior Associate and James Tobin, Partner

Mills Oakley has recently acted for Hanhwa Aus Pty Limited and a number of related parties (collectively, Hanhwa)  in successfully resisting an injunction application brought by its competitor and former customer Directed Electronics OE Pty Limited (Directed) seeking to stop Hanhwa from supplying a new digital audio visual unit to the Australian arm of a Japanese truck company.

Directed alleged that Hanhwa developed, designed and manufactured the new unit using Directed’s confidential information and resources, which it said were misappropriated by a former employee who left Directed for Hanhwa prior to the development of that new unit.

In reasons handed down on 24 July 2018, the Honourable Justice Beach of the Federal Court of Australia ruled that Directed had not demonstrated a sufficiently strong case that:

  1. the former employee had misappropriated Directed’s confidential information;
  2. that confidential information of Directed had been used in the manufacture of the new unit; and/or
  3. that Hanhwa had been knowingly involved in any wrongdoing.

Directed has alleged that there exists a supply agreement between Hanhwa and Directed which includes a significant number of implied terms, including but not limited to Hanhwa not selling the same, substantially the same, or replacement products to Directed’s customers in direct competition with Directed. Hanhwa strongly denies the existence of such an agreement or the imposition of any such terms.

In the present application, the Court heard that in early 2018, a key customer approached both Directed and Hanhwa inviting them to tender to supply a new unit which it wished to install into certain models of its trucks in Australia. Directed was unsuccessful in that tender, and the customer elected to engage Hanhwa to supply those units.

Directed sought in the first instance that Hanhwa be injuncted from supplying goods to the customer, which it said would be in breach of the implied terms of Hanhwa’s agreement with Directed, and would cause dire financial consequences for Directed if Hanhwa were entitled to pursue this commercial opportunity.

As alternative arguments, Directed’s counsel – Michael Wise QC – submitted that if Hanhwa was not injuncted from supplying the units, it was appropriate that Hanhwa quarantine 35% of the sale price of the units (as well as associated accessories), being a rough approximation of the gross profit Directed said it would have derived from the sale of the units if it had been successful in its tender.

In dismissing Directed’s application, His Honour:

  1. ruled that Directed had a “weak prima facie case (if at all)” for the existence and/or breach of any implied term as alleged, which was only “faintly pressed” by Directed;
  2. found that Directed had failed to demonstrate a strong prima facie case concerning the actions of the former Directed employee or any involvement by Hanhwa;
  3. in any event did not consider that Directed had convinced His Honour that the balance of convenience weighed in favour of Directed as to the knowing involvement allegations levelled and Hanhwa, noting inter alia:
    1. the significant prejudice which may be suffered by the end customer if Hanhwa were prevented from supplying to it;
    2. the fact that the end customer may elect to purchase units from a third party quite separate from either Hanhwa and/or Directed;
    3. the injunction would have deprived Hanhwa from “exploiting a significant commercial opportunity to its substantial benefit”;
    4. His Honour had significant doubts as to the value of any undertaking as to damages which Directed could give;
    5. forfeiture of 35% of the proceeds of sale of the units and accessories would result in Hanhwa operating at a loss and was little more than seeking security for any damages Directed may otherwise be awarded, which was an improper reason to grant an injunction; and
    6. Directed’s delay of over two months after becoming aware of the arrangement between Hanhwa and the end customer in seeking the injunction was a key factor weighing against the granting of an injunction in the terms sought. This was particularly the case given the “significant effort and resources” expended by Hanhwa in the intervening period to fulfil the orders placed with it.

This judgment serves as a timely reminder for parties seeking an injunction application of the importance of establishing that the balance of convenience rests with the applicant, particularly in circumstances where the applicant may otherwise be unable to establish a strong prima facie case for the granting of an injunction.

The judgment is Directed Electronics OE Pty Limited v OE Solutions Pty Limited (No 2) [2018] FCA 1097.

Hanhwa is represented by Mills Oakley, led by James Tobin and Phoebe Pitt, with Michael Osborne QC and Thomas Warner of Counsel.

For further information, please do not hesitate to contact us.

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